Sunday, October 16, 2005

What Delphi's Bankruptcy Ultimately Means to Your Future

Delphi Electronics entry into Chapter 11 marks yet another episode into the Book of Insanity. The news organizations have covered almost every aspect of the filing in excruciating detail. Everything from the proposed bonuses for the restructuring team, reducing the workforce wages by 65%, and cutting health care benefits for retired workers has been raked over the coals by the pundits ad nauseum.

But the most disturbing item (for me, at least) is the announcement that Delphi is considering asking for relief from their pension commitments. An article from the Wall Street Journal on October 10, 2005 reads, "We have not decided what we will do," with the Delphi pension plan, said Chairman and CEO Robert S. "Steve" Miller. "We want to try and create a company that accommodates our retirees without having [the pension plan] terminated and turned over" to the government's Pension Benefit Guaranty Corp., he said. The company plan is underfunded by as much as $4.3 billion.

I believe at this point in time, Delphi will follow many previous companies (the latest in my mind being United Airlines) in dumping their pension fund onto the government (should read Joe Taxpayer). This would happen (and I predict it will) if General Motors begs off on their promise to guarantee the pensions and benefits of Delphi workers when it spun the company off in 1999.

What this ultimately means to Delphi employees is that all present and future pensions (except for the company officers) will either not be honored or honored at a vastly reduced rate. Add to the mess the fact that the government PBGC's funds are expected to run out of funds in a few years due to a flurry of corporate pension defaults, the question demands to be asked: What does that mean for the rest of us?

It means that we, as a society, cannot rely on any one source of outside income in our senior years. Companies cannot be trusted to adequately fund their pensions, and that promise can evaporate in the stroke of a judge's pen. The stock market is far from a sure thing, and I have seen banks and credit unions close their doors with the accounts being settled for pennies on the dollar.

Additionally, new hires into my company are being told that they will not receive a pension, and that their retirement will consist solely on what they contribute to a 401K savings program. (Personally, I'm just waiting for something to happen to the mutual funds that many of us have our 401K savings in - some bright idiot will figure out that there are billions of dollars just waiting for the government to grab & used in some useless endeavor such as research into the origin of navel lint. Fortunately, the AARP is out there & does carry some serious clout, so 401Ks might actually survive.)

So how about the government taking care of your retirement? Are you nuts? How many of you bought into the fairy tale that the government would take care of us? The government can't take care of itself, so how is it going to take care of you? Medicaid and Medicare are going broke, and every fix usually involves a tax increase that would kill the economy. The government would like you to pay taxes for all of your working life then die immediately on retirement so they can tax your estate too.

If government were run like a traditional company, they would have been out of business a long, long time ago. It's almost enough to invest in a couple gross (that's 144 times 2 for the math impaired) of the old Mason jars & bury your savings in the back yard with the biggest, meanest dog you can find taking up residence in the doghouse on top of the Mason jars. That & barter for everything you need...

What's the answer? Anything to get the government out of my pocket would be a good start. Let me invest the funds they take out of my paycheck for the Social Security I'll never get and fund my retirement as I desire, whether it's the stock market, mutual funds, or the Bank of Mason Jar LLC. The proceeds from these investments would be tax-exempt for all time since I've already paid tax on the income that I used to fund the investments and I'll be just fine (of course, I would need to show the records to Uncle Sam and Aunt Irs to prove that it's all legal & slated for retirement).

Unfortunately, not everyone will do this as it will either be their choice or beyond their capability not to save anything. And of course, there will be the government to bail their sorry butts out of it. But that's another post for a later time...

Bottom line - Delphi's bankruptcy, among many others, is a foreshadowing of things to come from the business side. The government has already proven what kind of money manager they are. So be prepared, or be sorry.

"No one plans to fail; they just fail to plan."

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